Photo by Ruth Enyedi on Unsplash

A risk to one is a risk to all

What follows is statement from a Secretary of State

“The University will be dissolved, with each of its campuses taken over by a neighbouring university. These mergers are subject to approval from the relevant regulators.
All three universities within the area – will be required to make the full £74.9 million of efficiencies identified by the Special Administrator.
All vacant or poorly utilised premises will be vacated, and sold where possible.
The Department will pay for the excess costs of the PFI buildings at the failing institution and write off the accumulated debt of the University so that the new organisations are not saddled with historic debts. It will also negotiate an appropriate level of transitional funding to cover implementation.”

31st January 2013

The newspapers are excited by the story that some universities might be close to insolvency and that one is even consulting insolvency practitioners.

The informed university opinion online is that throwing a university into administration is difficult if not inconceivable and that a Conservative government will have to bail them out – in other words, this is not a systemic risk to others.

This is a dangerously insular view.

The above statement is the exact press release from the the Secretary of State for Health, Jeremy Hunt, with the word hospital replaced with university, from when the South London Healthcare Trust was put through administration in 2012-13. It was messy, with legal challenges in high court, leading to years of disruption.

If an NHS trust can be forced into administration why should universities conclude they are not subject to the same risk? The Government and the treasury have been through this pain barrier already.

One question is whether the OFS can play the role of “special administrator”. Michael Barber is requiring universities to have a dispersal plan for their students. A plan which might be a shadow model in the event of a closure.

The current suggestion is that 3 universities may be in trouble. What is not set out is how one university administration could impact every other institution in the area or sister specialist institution anywhere in the UK.

Market failure has been the predicted outcome of higher education marketisation and the rise in tuition fees as a proportion of university revenue for some time, not least since the removal of the cap on university numbers in 2015.

Top ranked universities and the strong brands moved relatively gently to add extra students into their courses and secure their finances against the known dangers of the drop in the number of 18 year olds.

A few hundred extra places at this Russell group institution, a thousand at another strong brand university soon leaves a gap in student numbers the size of a couple of universities.

This has been anticipated and other universities have been shrinking to be more sustainable – a sensible policy, a market rationalisation, as liberal economists would have predicted.

Some universities are building roles in coalition with FE providers, if not taking over them entirely.

But is it enough?

The challenge is made complicated by the accelerated growth of unconditional offers, disruptions in overseas recruitment, changes in nursing courses and the unpredictable effects of Brexit.

Then the black swan of the 2017 election result spooked the Conservative government with tuition fees thrown into the Auger Review with little idea of a way forward.

In parallel the student loan book debt and default, is being subjected to a review which might say the huge long term debt has to come back onto the government books in the national debt.

Such a change worries the Treasury and might cause UK bond markets trouble with overseas investors. Investors who have, unsurprisingly, not been following closely enough how the unique intergenerational redistribution system built into the UK contingent loans system works out after 2045, and are now running for cover somewhere else

So you can understand the government’s problem in finding a long term solution.

But surely all this has been gamed to see what the market might do?

Historians of Public Management will point again to the NHS where a marketisation was gamed in East Anglia region in the early 1990s. Instead of a better balanced set of diverse services, with less efficient NHS facilities closing, selfish and panicked management teams in the game opted to close all of the A&E departments – result, slow down to stop in the sector until Blair came in.

Others will point to government attitudes to FE where rationalisation, area reviews, mergers and new purchasers are being empowered through the apprenticeship levy. FE is also the system where 11% of UK degrees are already taught.

It is important for every university to understand a financial failure could affect them all.

A risk to one is a risk to all.

Neil Stewart
Editorial Director, The Education Studio